Abstract

As corporate social responsibility (CSR) becomes increasingly relevant, India has moved from a voluntary regime to a mandatory one. This paper examines the CSR expenditure compliance of 490 publicly listed companies from 2014 to 2021 (i.e., the post-voluntary regime period) and explores the causes and consequences of firms making additional voluntary CSR investments. We analyze various firm characteristics, including price volatility, employee welfare, cash flows, and political party donations, to explore why some firms spend more on CSR than others and exceed the mandated CSR investment threshold. Our findings demonstrate that CSR expenditures provide various advantages to firms. Higher CSR activity reduces stock price volatility and improves employee performance with a reduced cost. However, CSR expenditures require higher ex-ante liquidity. Our results also show that firms that make political donations tend to be more socially responsible. The latter finding is of particular interest because it contrasts prior findings that have found CSR expenditures and political contributions to be substitutes rather than complements.